Opinion
99-CV-0417E(Sr)
September 30, 2003
MEMORANDUM and ORDER
This decision may be cited in whole or in any part.
Plaintiff ("Citizens") commenced this action June 21, 1999 against Se-Fish Associates ("Se-Fish"), David Segal and Arnold Kostiner seeking mortgage foreclosure, judgment against Se-Fish on a promissory note, and judgments against Segal and Kostiner as principals of Se-Fish and guarantors of the promissory note. This Court subsequently issued a July 24, 2002 Memorandum and Order disposing of several motions that had been filed by the parties. See Citizens Bank and Trust Co. v. Se-Fish Associates, 2002 WL 31017604 (W.D.N.Y 2002). Shortly thereafter, the parties advised the Court that they had reached a settlement. Accordingly, the undersigned issued a July 26, 2002 Order dismissing this case "without prejudice to the right, upon good cause shown within 90 days, to reopen this action if *** settlement [was] not consummated." Plaintiff filed an October 24, 2002 motion to reopen this case based on its assertion that settlement had not been consummated. Defendants then filed papers in opposition and cross-moved to enforce settlement. Citizens subsequently filed a March 31, 2003 motion to enforce the terms of the original settlement agreement ("Agreement"). Such motions are presently before the Court for disposition.
Midwest Financial Acceptance Corporation — the originally-named plaintiff in this action — assigned its rights to Citizens on July 3, 2002.
The mortgaged property is located at 599 Delaware Avenue in Buffalo, N.Y. Such property will hereinafter be referred to as "the Delaware Avenue property."
Before addressing the substance of the parties' motions to enforce the purported settlement agreement in this case, the Court must initially determine whether it has jurisdiction to do so. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378 (1994) (holding that for a court to enforce a post-dismissal settlement agreement, it must have an independent basis for jurisdiction); see also Scelsa v. City Univ. of New York, 76 F.3d 37, 40 (2d Cir. 1996) ("enforcement of a settlement agreement is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for jurisdiction.") (punctuation marks omitted) (quoting Kokkonen, at 378). This Court retained such jurisdiction inasmuch as it dismissed this case but expressly provided that it could be reopened if settlement was not consummated. See Alvarez v. City of New York, 146 F. Supp.2d 327, 334 n. 5 (S.D.N.Y. 2001) (finding jurisdiction to enforce a settlement agreement pursuant to the Court's dismissal Order which stated that any party could move to reopen the case if settlement was not consummated within 30 days); see also Bell v. Schexnayder, 36 F.3d 447, 448-450 (5th Cir. 1994) (affirming district court's enforcement of a settlement agreement after the district court had dismissed the case "without prejudice to the right, upon good cause shown within sixty (60) days, to reopen it if settlement [was] not consummated"). The Court finds that good cause exists to reopen this case inasmuch as it is evident that the parties have been unable to consummate a settlement. As such, plaintiffs motion to reopen this action will be granted and the Court will therefore address the parties' respective motions to enforce the Agreement.
It is undisputed that the terms of the Agreement are recited in a May 24, 2002 letter from Citizens to Se-Fish. See Supp. Decl. of Mitchell J. Banas, Esq., Ex. A. The provision of the Agreement at issue — which became operative upon the termination of a pending third-party sale of the Delaware Avenue property — is paragraph seven, which states in its entirety that Se-Fish agreed to do the following:
At the time the parties signed the settlement agreement, there was a prospective third-party buyer of the Delaware Avenue property. The buyer subsequently withdrew his offer on July 11, 2002. Decl. of Vincent O. Hanley, Esq. ¶ 4, Ex. A.
"a. Pay all outstanding real estate taxes and any other charges affecting the RE [real estate] (As agreed upon);
b. Convey clear title to the RE to Citizens in a manner of its choosing (i.e. by Deedin Lieu of Foreclosure, by Stipulating to Judgment in the ongoing litigation, etc. (As Agreed Upon);
c. Pay Citizens the sum of $80,000 (As amended);
d. Release Citizens, Midwest Financial Acceptance Corporation (MFAC) and Midwest Servicing, Inc.(MSI) from all claims (As agreed upon)." Ibid.
Although it appears that both parties are now willing to complete the transfer of the property and to fully perform under the terms of the Agreement, they have been unable to agree on the effective closing date. The principle issue for the Court is which party is responsible for the property taxes and charges that have accrued on the property since July 31, 2002. Each party contends that the other is responsible for such costs. For the reasons stated hereinbelow, the Court finds that the defendants are responsible for such costs according to the terms of the Agreement.
While familiarity with the facts is presumed, the Court will set forth those which are relevant to the present dispute. On August 19, 2002, Vincent O. Hanley, Esq., counsel for defendants, sent a letter to Jeffrey A. Johnson, plaintiff's Vice President, along with the Agreement, a draft of the proposed deed in lieu of foreclosure and other closing documents. Hanley requested that plaintiff forward the documents to its attorney and requested that the transfer of the property to plaintiff be concluded prior to the end of August in order to avoid additional penalties and interest on the property taxes. See November 15, 2002 Aff. of Bernard M. Brodsky, Esq., Ex. B. Johnson subsequently contacted Hanley September 6, 2002 via telephone and indicated that plaintiff had retained Phillips, Lytle, Hitchcock, Blaine Huber ("Phillips, Lytle") as its counsel. Hanley did not hear from Phillips, Lytle until a September 26, 2002 phone call from William J. Brown, Esq. who had confirmed that his law firm would be representing plaintiff. Hanley sent Brown a letter the next day and enclosed copies of his August 19, 2002 correspondence with Johnson and the proposed closing documents. In addition, Hanley emphasized to Brown the "urgency with respect to the closing" and that Se-Fish was prepared to close the transaction "immediately." Brodsky Aff., Ex. C. Hanley also enclosed a copy of a draft "Settlement Agreement," which included a July 2002 adjustment date for the purpose of calculating Se-Fish's share of the property taxes. March 31, 2003 Aff. of John G. Schmidt Jr., Esq. ¶ 17, Ex. G. Brown subsequently requested and received from Hanley a copy of a June 15, 2000 Asbestos/Lead Based Paint Site Assessment for the Delaware Avenue property. Brodsky Aff. ¶ 13, Ex. D. On October 10, 2002, Anne M. Peterson, Esq. of Phillips, Lytle contacted Hanley to inquire about costs associated with asbestos remediation on the property and advised him that Citizens would not close the transaction until it had completed an environmental due diligence inspection. Id. ¶ 13; Hanley Aff. ¶ 12. Hanley subsequently advised Brown via an October 11, 2002 letter that "[m]y clients consider the delay in concluding the settlement, and the belated inquiries concerning asbestos, to be a direct violation of the settlement agreement ***." Banas Supp. Decl., Ex. F.
A more detailed description of the facts in the case may be found in this Court's July 24, 2002 Memorandum and Order. See Citizens Bank and Trust Co. v. Se-Fish Associates, 2002 WL 31017604 (W.D.N.Y. 2002).
Specifically, the letter stated:
"The proposed deed is being executed by Se-Fish now so that it can be delivered and recorded before the end of August. As indicated in the closing statement, Se-Fish proposes to pay to Citizens, at the time that the deed is delivered and recorded, an amount sufficient to pay the delinquent taxes and its proportionate share of the current taxes. It is important that we finalize these arrangements before the end of August because additional penalties and interest will be added to the taxes after August 31, 2002." Brodsky Aff., Ex. B.
Brodsky asserts that "Citizens ignored the August 19, 2002 letter, failing even to provide Se-Fish with the courtesy of a response." Brodsky Aff. ¶ 9.
Schmidt asserts that "Phillips, Lytle, as counsel to Citizens, advised shortly after receiving the proposed closing documents in September 2002 that the papers were unacceptable and required modification" and further, that citizens "never [agreed] to adopt Se-Fish's proposed closing documents or [the] July 31, 2002 adjustment date." Schmidt Aff. ¶¶ 19-20. Defendants, however, point to the fact that plaintiff never notified Hanley or anyone on behalf of the defendants that the July 31, 2002 date was unacceptable until February 7, 2003. April 7, 2003 Decl. of Mitchell Banas ¶ 5.
Although plaintiff subsequently filed its motion to reopen, the parties continued to correspond in an apparent effort to complete the transfer of the Delaware Avenue property pursuant to the terms of the Agreement. However, no such transfer occurred and the parties thereafter encountered a dispute regarding plaintiff's efforts to conduct an environmental assessment of the property. Schmidt subsequently sent a January 8, 2003 letter to the undersigned seeking assistance to resolve the dispute. Following the Court's intervention, plaintiff was allowed to conduct the environmental assessment. Consequently, Schmidt requested a further adjournment of the parties' respective motions based on what he deemed "the parties' willingness to settle [the] matter." Schmidt Aff., Ex. C. Oral argument on the motions was adjourned until April 11, 2003. By letter dated February 5, 2003, Banas informed Schmidt that defendants would be preparing closing documents and "adjusting [taxes and charges on the property] as of July 31, 2002," which date, according to Banas, was the "adjustment date set when Se-Fish first sought to close the transaction pursuant to the settlement agreement." Id., Ex. D. Schmidt responded via a letter dated February 7, 2003, opposing a July 31, 2002 adjustment date and insisting that the date for adjustment is the date that title is transferred. Id., Ex. E. Banas subsequently sent Schmidt a February 21, 2003 letter by which he asserted that
Hearings with regard plaintiff's motion to reopen and defendants' subsequently filed cross-motion to enforce settlement were thereafter adjourned several times by the Court in contemplation of further settlement negotiations by the parties.
Citizens had raised concerns with Se-Fish regarding environmental issues because the property at issue had been previously used as a laboratory for the Food and Drug Administration. Schmidt Aff. ¶ 9. Schmidt indicated in his letter to the Court that Se-Fish had refused plaintiff access to the property in order to conduct an environmental assessment. Id., Ex. C.
Banas asserts that Schmidt's opposition to the July 31, 2002 adjustment date had been the first time that the plaintiff had conveyed any such objection "in the five-plus months since learning of that date." Banas Decl. ¶ 17.
"(1) the July 31, 2002 adjustment date became a term of the parties' settlement agreement when the plaintiff decided in January 2003 to consummate the settlement after that adjustment date had been proposed by the defendants and (2) alternatively, the expenses incurred after July 31, 2002 were recoverable as damages by virtue of plaintiff Citizen's unreasonable refusal to close the transaction in a timely fashion." Banas Supp. Decl., Ex. N.
Banas also included with the letter draft closing statements that reflected adjustment dates of July 31, 2002 and February 28, 2003 in order to highlight the approximately $25,000 cost difference between the two. Banas Supp. Decl., Ex. N.
Banas also included with the letter draft closing statements that reflected adjustment dates of July 31, 2002 and February 28, 2003 in order to highlight the approximately $25,000 cost difference between the two. Banas Supp. Decl., Ex. N.
Banas then sent Schmidt a March 14, 2003 letter advising him that, on March 5, 2003, defendants had discovered several feet of water and ice in the basement and other areas of the Delaware Avenue Property due to an apparent break in the sprinkler system, which was caused by a frozen pipe. Banas insinuated that plaintiff had caused the damage stating that "the sprinkler system had been drained and shut off in 1998, and the premises tolerated at least four winters thereafter without incident" and that the "only intervening change in circumstances were the inspections and other activities conducted at the premises by [Citizens]" earlier in the winter. Schmidt Aff., Ex. H. Schmidt subsequently responded to Banas' February 21 and March 14 letters with a March 18, 2003 letter. In response to Banas' February 21, 2003 letter, Schmidt rejected Banas' purported attempt to materially change the settlement agreement by setting the adjustment date for transfer of title as July 31, 2002 and seeking to have Citizens pay all taxes and other charges accruing since that date. Schmidt asserted that these terms were not part of the May 24, 2002 agreement and that there was no basis for asserting that Citizens unreasonably refused to close the transaction in a timely fashion. Finally, Schmidt expressed Citizens' willingness to proceed with the settlement as dictated by the May 24, 2002 letter. Id., Ex. E. With regard to the property damage, Schmidt noted that (1) Se-Fish, as owner of the property, was responsible for all risks prior to the transfer of title to Citizens, (2) any such loss should be covered by Se-Fish's property insurance and (3) the environmental review conducted previously by plaintiff did not involve the sprinkler system. Ibid. On March 31, 2003 plaintiff filed its motion to enforce the settlement agreement. Thus, the parties do not dispute that they entered into a valid and enforceable Agreement and it appears that they are prepared to perform according to the terms thereof. However, the Court must decide what the effective closing date should be according to the terms of the Agreement. Defendants request an adjusted closing date of July 31, 2002; plaintiff contends that the adjustment date should be set "in the near future," — presumably, on the date that title ownership is transferred from defendants to plaintiff.
In response, defendants assert that "[e]ither the plaintiff did something to the sprinkler system during its environmental inspection which caused the system to become charged with water and then freeze and break; or it did not, with the defendants continuing to hold title to the property only because of the plaintiff's unreasonable refusal to consummate the settlement in a time fashion ***. Either way, any loss should be borne by plaintiff, not the defendants." Banas Decl. ¶ 8. Plaintiffs, however, deny any involvement in the damage to the Delaware Avenue property. Plaintiffs assert that the environmental consultant did not access or test the sprinkler system and that Se-Fish's remedies should lie against its insurer or the firm that drained the system. Schmidt Aff. ¶ 13.
In advocating for a July 31, 2002 adjustment date, defendants contend that it was the intent of the parties that performance be done in a timely fashion and that a critical aspect of the Agreement was that the closing date occur no later than July 31, 2002. Defs.' Mem. Law, at 5. Essentially, defendants argue that it was implicit that "time was of the essence." Defendants further point to the fact that they have been prepared to consummate the Agreement since August of 2002 and that defendants should not bear the additional costs — approximately $25,000 — that have been incurred due to plaintiff's undue delay in performing under the Agreement.
Plaintiff counters that Se-Fish is seeking to unilaterally and materially change the terms of the Agreement, to the prejudice of Citizens, by imposing a July 31, 2002 adjustment date. Such an alteration, plaintiff continues, is unacceptable because the Agreement contains neither a "time is of the essence" clause nor any reference to an adjustment date. In addition, plaintiff contends that it never agreed to defendants' attempts to modify the Agreement by including a July 31, 2002 adjustment date.
In deciding the parties' motions to enforce the Agreement, the Court will look to the general principles of New York contract law. In determining the intent of the parties, the Court must look first to the terms of the Agreement. Consarc Corp. v. Marine Midland Bank NA., 996 F.2d 568, 573 (2d Cir. 1993) (citing Slatt v. Slatt, 64 N.Y.2d 966, 967 (1985)). If such terms are unambiguous, the Court must "give effect to the contract as written and may not consider extrinsic evidence to alter or interpret its meaning." Ibid. Where provisions are clear and unambiguous, "ambiguity is not created simply because the parties urge different interpretations." U.S. Trust Co. v. Jenner, 168 F.3d 630, 632 (2d Cir. 1999).
See Sears, Roebuck Co. v. Sears Realty Co., 932 F. Supp. 392, 401-403 (N.D.N.Y. 1996) (applying New York law in determining the enforceability of a settlement agreement); see also Bank of New York v. Amoco. Oil Co., 35 F.3d 643, 661-662 (2d Cir. 1994) (discussing New York law governing settlement agreements); Eardman v. Bethlehem Steel Corp., 1994 WL 721386, at*3-4 (W.D.N.Y. 1994) (holding that New York law governed a dispute involving a settlement agreement); Red Ball Interior Demolition Corp. v. Palmadessa, 173 F.3d 481, 484 (2d Cir. 1999) (holding that settlement agreements are contracts and that such agreements should be construed in accordance with general principles of contract law).
The pertinent provision of the Agreement clearly and unambiguously shows that Se-Fish agreed to "[p]ay all outstanding real estate taxes and any other charges affecting the [real estate] (As agreed upon)." There is no mention anywhere in the Agreement of a specified closing date or, for that matter, a July 31, 2002 closing date. While it is fair to say that defendants considered time to be of the essence because it was in their best interests to transfer the property as soon as possible in order to avoid additional taxes and charges on the property, it cannot be said that such urgency was even contemplated by the plaintiff considering the absence of a specified closing date, let alone a July 31, 2002 closing date, in the Agreement. In addition, defendants have failed to convince the Court that plaintiff ever agreed that the Agreement implicitly carried with it a "time is of the essence" clause. The absence of a "time is of the essence" clause, or even a contemplated closing date, within the Agreement meant only that plaintiff had to complete the transaction within a reasonable time. See Savasta v. 470 Newport Assoc., 82 N.Y.2d 763, 765 (1993) ("When a contract does not specify time of performance, the law implies a reasonable time."); see also Tupper v. Wade Lupe Const. Co., 242 N.Y.S.2d 546, 549 (N.Y.Sup. Ct. 1963) (holding that, in the absence of a time is of the essence clause, the rule of reasonable time for performance applies). What constitutes a reasonable time for performance depends upon the facts and circumstances of each case. Ibid. However, such an issue — to wit, whether either party failed to perform in a reasonable amount of time — is not before the Court. The parties have both moved to enforce the agreement and thus seek the equitable remedy of specific performance rather than damages for breach of the Agreement. Accordingly, this Court's holding will be limited to enforcement of the Agreement and it will make no determination as to damages. In sum, defendants have failed to show the Court that plaintiff ever agreed to a July 31, 2002 closing date or that the Agreement carried with it an implicit time is of the essence clause. Accordingly, the Court will decline to impose a July 31, 2002 adjustment date on the transfer of the Delaware Avenue property. It will, however, grant the parties' motions to enforce the Agreement inasmuch as they freely entered into a valid and enforceable contract.
Defendants point to plaintiff's actions in arguing that plaintiff intended for time to be of the essence. Specifically, defendants point to a May 24, 2002 letter from Johnson to Brodsky — a letter which served to respond to an initial settlement offer by defendants — in which Johnson had stated that "as time is of the essence in this matter, please respond to this letter by accepting or rejecting the terms stated above, *** no later than May 28, 2002." Schmidt Aff., Ex. B. However, on May 24, 2002, the parties' respective motions were still pending before the Court. Thus, it could easily be argued that Johnson's reference to time merely shows that he felt it was urgent to quickly come to an agreement on the terms of settlement inasmuch as a ruling from the Court could be issued at anytime. In any event, it has been held that similar language is insufficient to make time of the essence for the actual contract. See N. Triphammer Dev. Corp. v. BMU Real Estate Inv. Corp., 704 F. Supp. 422, 429-430 (S.D.N.Y. 1989) (citing New York cases).
The Court notes that although defendants have complained of plaintiff's alleged undue delay and intransigence in allegedly refusing to complete the transfer of the Delaware Avenue property, they seek specific performance by the plaintiff rather than damages recoverable under a breach of contract theory. It should also be noted that defendants could, if they so choose, seek to recover as damages the added costs of its property taxes and other charges affecting the Delaware Avenue property due to plaintiff's conduct in failing to perform in a reasonable time by commencing a separate action — presumably in state court — for breach of contract.
Finally, the Court declines to address the parties' dispute over which party is responsible for the costs of the property damage due to the allegedly broken sprinkler system. The issue is not ripe for adjudication and the parties have not clearly stated, at this point, exactly what kind of relief is sought.
Accordingly, it is hereby ORDERED that plaintiff's motion to re-open the case is granted, that plaintiff's motion to enforce the terms of the settlement agreement is granted, that defendant's cross-motion to enforce the terms of the settlement agreement with a July 31, 2002 adjustment date is denied, that the parties shall fully perform in compliance with terms of the Agreement within thirty (30) days of the filing of this Order, that the effective closing date shall be the date upon which title to the property is transferred and that the parties shall submit proof of such compliance to the Court within 15 days of full performance at which time it will order this case closed with prejudice.